Technically Speaking

Reality Check!

brad@fluetschfinancialservices.com (Bradley Fluetsch) — 2012-05-17T14:27:02Z

First, let's get real about Facebook's valuation. Yes it has lots of users, but if you don't get it at the IPO price and chase it you will be one of their many losers.

Second, JP Morgan. OMG! $2 billion is less than two tenths of one percent of their balance sheet, imagine the losses they are going to incur when the US goes back into BO's recession. I understand numbers confuse people, and big numbers scare people, but you wouldn't expect Treasury Secretary Timmy G doesn't grasp the totality of JPMorgan's position. So either he is incredibly stupid or is playing politics over an inconsequential trade.

Lastly,

There is going to be a buying opportunity in the future, but not in the near future.

Please, just a little cheaper!

brad@fluetschfinancialservices.com (Bradley Fluetsch) — 2012-05-11T02:05:32Z

Yes, I love Cisco Systems (CSCO) and I really appreciate those of you who sold it off. Now, please just sell it off some more so I can make my entry into this well run, visionary company!

No, I am waiting for it in the low $15 dollar range to make my entry, but I hope that I am not looking a gift horse in the mouth.

Bonds are not safe to flee too!

brad@fluetschfinancialservices.com (Bradley Fluetsch) — 2012-04-29T18:42:37Z

So you have concerns about the equity market and want to reduce portfolio risk, don't run to the bond market! Take a look at how a variety of bond types have performed for the last two years.

The Federal Reserves "Operation Twist" is pretty easy to spot driving TLT to excessive returns in August to September 2011. Just as obvious as the Fed's action is reflected in the market, so is smart money's move out of long maturity Treasuries. IEF, which represents the intermediate maturities of the Treasury market is the second best performing sector but has been flat since the August 2011 rally.

In fact, the Fed's manipulation of the bond market back in August 2011 skews all return data that extends beyond August. So take a look at this six month chart and notice bonds are really going no where.

The only bullet the Fed has left is to print money and that leads to inflation. If you own long bonds of any kind, dump them now. If you want yield, look to high quality utility stocks and real estate. If you want to protect your purchasing power, own TIP and WIP.

Bonds with long maturities will do more long-term damage to your net worth than any other asset class investors can hold. While short-term bonds (less than three years) might not yield much today, at least they will not blow your savings up. Cash is not a bad place to invest at the moment. No you will not earn anything, but you won't lose anything either. If you do hold cash, consider holding it in currencies other than the U.S. Dollar.

On que, equities rolling over

brad@fluetschfinancialservices.com (Bradley Fluetsch) — 2012-04-24T15:39:05Z

When a broad equity index 50 day moving average initiate a negative slope it is time to review your exposure to that index. When virtually every major, broad based equity index initiates a negative slope on the 50 day moving average it is time to wake up and review your total equity exposure.

So the chart above shows small caps 50 day moving average rolling over and take my word for it, so is the mid cap index. SPY's 50 day moving average is approaching flat and has not turn negative yet, but read on because I think you will be convinced the question is not if, but when.

The chart below compares Germany EWG, Europe VGK, and EFA. What strikes me about this three year chart is that it looks as if we are putting in the right shoulder of a classic head and shoulders pattern and the 50 day moving average has rolled over to a negative slope.

It is not one thing that has me concerned about being long equities, but a portfolio of problems.

France could easily drag Europe into a double dip of all double dip recessions
Failure of Europeans to address, excessive public sector spending, taxes, debt
Israel - Iran
United States election
Current market levels and variance from 200 day moving average
Slowing US economic recovery
US lack of fiscal plan, debt and condition of state and municipal tax receipts
Investors made a boat load of cash in the first quarter and looking to take profits
Number of one plus percentage change days
Lastly, May is only six days away.

SPY retreat coming

brad@fluetschfinancialservices.com (Bradley Fluetsch) — 2012-04-03T00:09:42Z

I actually think the economy and therefore the market are reasonably healthy and improving. I only bring to your attention that the current price of the SPY is significantly higher than the 200 moving average and such divergences always reverse! Usually with the current price falling back to the 200 moving average.

I would use such pull back as a opportunity to bring asset allocations to full equity exposure, even over-weight the equity portfolio. Personally, I would over-weight high beta asset classes such as Small Cap and Emerging Markets.

Operation Twist blows-up Fed Balance Sheet

brad@fluetschfinancialservices.com (Bradley Fluetsch) — 2012-03-19T19:34:29Z

Some of us who understand fixed income understood that "Operation Twist" was not a riskless transaction. While the Federal Reserves Balance may not have expanded in dollar terms, the level of risk was dramatically increased. In the profession we call it duration and when interest rates rise, duration is a killer for fixed income with long maturities.

SHY is the Barclays US Treasury Index with maturities between 1-3 years
IEF is the Barclays US Treasury Index with maturities between 3-10 years
TLT is the Barclays US Treasury Index ETF with maturities 20+ years

So when the Fed sold its US Treasuries with short-term maturities in order to purchase US Treasuries with long-term maturities they added a significant amount of interest rate risk. The following chart demonstrates the level of loss the Fed's balance sheet has incurred in the past couple of weeks and it is only going to get worse.

The moral of the story, the Feds short-term maturities would have a minor loss, but their long maturities are down about eight percent year to date. On a $3 Trillion balance sheet, that is a HUGE LOSS!

Great job Ben!

Emerging markets get GREEN light!

brad@fluetschfinancialservices.com (Bradley Fluetsch) — 2012-03-02T17:24:57Z

Today on Surveillance Midday Pimco's Lupin Rahman recommend Latin America as the best place for emerging markets. I wanted too take a look at ILF against EEM and FXI. What is really scary is that for the past year, the correlation is nearly one with no divergence between these markets. The best news is that the all three recently experienced a "Golden Cross" where the 50 day moving average breaks above the 200 day moving average. GREEN light on Emerging markets!

Santorum blow-up

brad@fluetschfinancialservices.com (Bradley Fluetsch) — 2012-02-29T03:16:45Z

America dodges nutcase bullet in Michigan!

Well thank GOD that Santorum blew himself up by seeking liberal Democrat votes and the market will signal all is Green!

With Romney's win in both Arizona and Michigan it seems that he will be the Republican candidate and will blow the Obamanation out of the water come this fall! Markets will rally now that the radical religious zealots have been exterminated from the Republican primary. Look for similar market performance as it was in 1979-1980 when the country realized that the peanut farmer was about to be retired and someone else will be calling the shots!

If fact, Santorum sounds like he wants to be VP. Romney, just say no!

Santorum sell-off

brad@fluetschfinancialservices.com (Bradley Fluetsch) — 2012-02-20T17:04:45Z

The Republican race looked pretty much wrapped up with Romney as the candidate. The recent surge by Rick Santorum as caused the markets to go flat for most of February.

Two points I would like to make.

First is that Small and Mid Cap stocks are just now catching up to Large Cap stocks, so take advantage of any sell off by buying beta.

The economy is stabilizing, China is easing, domestic employment is expanding all good signs that gives this investor the confidence that the markets have healed their worst structural problems. Can the recent trends be disrupted, ABSOLUTELY and while many figure it will be Iran or North Korea, I think it will be here in the good ole US of A.

I call it the Santorum Sell Off! The markets where comfortable with Romney as the Republican candidate. He has the right mix of elected leadership skills but also understands the private sector. The markets are not made up of conservative voters, it is made up of a broad section of society and the one thing that scares market participants the most are excessively conservative candidates who are more about managing the public's personal life than managing defense, transportation and the wasteful Federal spending.

As Santorum gains the markets will lose. Why? Because with Santorum as the Republican nominee, it almost assure four more years of President Obama. America does not want a elected people telling them how to live, what is good/bad, or how their personal relationships should be. The American electorate is mostly moderate and does appreciate those who don't respect a fundamental saying "Don't Tread on ME".

The next month will determine if this current thesis is correct or not, but if it is, use it as a buying opportunity, buy Beta, because in the long run, Republicans can tolerate a moderate candidate, but America cannot - will not tolerate a conservative one.

Short GNCMA

brad@fluetschfinancialservices.com (Bradley Fluetsch) — 2012-02-13T04:26:56Z

It is not often, if fact I have never recommended shorting an individual company but General Communications of Alaska is such an abusive company of its clients, I recommend shorting this company. Its ticker symbol is GNCMA and I expect its value to fall by 50 percent in the short-term. This company exhibits the worst ethics and abuses it customers. Get out of this loser now!

China, India ease, markets respond

brad@fluetschfinancialservices.com (Bradley Fluetsch) — 2012-02-05T16:46:54Z

China reduced reserve requirements, India lowered interest rates in the past two weeks and the markets responded positively. Yes, when nearly half the worlds populations' leaders choose economic growth, the planet will experience economic growth. Americans are tired of the economic assault the Obama administration has inflicted on it and sees hope with a new Republican administration in the offing. The market is a future discounting mechanism and it is just beginning to discount economic growth and recovery. The rally that started in December and continues now has many legs and will continue.

Get out of bonds NOW! Get into stocks, commodities and real estate. This is the time for risk taking and you will be rewarded. Like the markets recovered from four years of President Carter, so too will the markets recover from four years of Obama.

Predictions for 2012!

brad@fluetschfinancialservices.com (Bradley Fluetsch) — 2012-01-01T17:22:55Z

For my sixth year in a row my market predictions in no particular order for the coming year.

1. Worse performing sector in the bond market will be long duration (maturity) US Treasuries, avoid TLT.
2. Developed Europe will rebound by the end of 2012 and German equities will lead the way, own EWG.
3. Emerging Markets cannot by held down for ever, look for them to lead all broad equity markets, EEM.
4. Look for small caps to out perform mid and large camp, overweight small caps IWM at the cost of large cap.
5. Look for XLB, XLE and XLI to lead all SP 500 sectors.
6. Short duration Corporates and inflation protected Treasuries will be the top performing bonds, CSJ and TIP
7. Look for Platinum to out perform both Gold and Silver.
8. Dollar will hit new lows against most currencies except Euro. Swiss will un-peg from EURO.
9. Oil will make new all time high.
10. Equity markets will suffer until Republican candidate is selected, but will not rebound until Vice President candidate is named. Markets will rally most of the summer on a wave of Republican confidence, but will be a disaster approaching the election (September and October will be UGLY) With Obama's defeat, it will be a November and December to remember!!

Bonus prediction!!! The world will not end 12-21-2012

Baseline Charts for 2012

brad@fluetschfinancialservices.com (Bradley Fluetsch) — 2011-12-31T19:06:31Z

I think it is important to see what the markets have done in the past, given the global economy's performance.

First, what has the SP500 done compared to its sectors. I add MOO (agriculture) and IYR (real estate) because in my opinion they have sufficient economic differences from the other sectors and you can invest in them.

First thing that strikes me is the increase in volatility in 2011 compared to 2010. Next is the high correlation in market declines and the lack of correlation in market rallies. Another interesting observation is the volume spikes occur in or near the beginning of market declines. The one thing that really surprises me is the strength of the consumer, XLY and XLP. While their balance sheets have improved over the past few years, wages have been stagnant and employment is still tough to come by.

Next let us compare Market Capitalization.

Market theory suggests that more risk more return and Small Cap stocks (IWM) have the most risk. Given that, is MDY (mid cap) doing better than it should relative to small cap or is small cap under performing? I would also point out market cap's are highly correlated.

Now, SP 500 against the world.

While I know Europe is having some financial difficulties, but it is not like the US Congress is doing any better. This chart really surprises me given how weak the US dollar has been for the past five years. Frankly there looks like some opportunity in this chart, but the scary part is how correlated the world has become.

On to Bonds.

I am dumb founded by the performance of long duration Treasuries. TLT, followed by IEF, and TIP. If I didn't know better, investors are giving high marks to the US Congress and its financial management of the country. Can you say BUBBLE! I am at a loss to explain this, it makes no sense whatsoever!

I am going to add a new chart this year because Currency has become such an important aspect to investing in the modern world.

It is hard to fathom the percentage changes in global currencies in the past two years. It is obvious why the Swiss intervened and pegged the Swiss Franc to the Euro, they were being priced out of the export market of goods and services. The other surprise is how poorly the Mexican Peso has performed in the past 12 months given its oil exports. One last thought is on correlations, notice the other currencies are almost negatively correlated to the dollar (as it should be). The question is why does currency changes not flow through to the equity markets?

Good luck in 2012, I will be posting my predictions for 2012 tomorrow and several were derived from this little exercise.

2011 Prediction review, YIKES

brad@fluetschfinancialservices.com (Bradley Fluetsch) — 2011-12-26T18:05:51Z

For the past five years I have posted my predictions for the coming year on January 1st of the year and reviewed those predictions in the week after Christmas. The first four years the review process was not so bad, but for 2011, I have been dreading the review. So here we go.

1. Europe will be the top performing developed market

Clearly the SPY was the top performing market so this prediction was wrong.

2. Large cap US will out perform small and mid cap equities.

BULLSEYE! No regrets on this prediction, it was absolutely correct! So you would not have made any money going long the SPY buy shorting MDY and IWM were profitable!

3. US Dollar will have a bad year, down 10 percent.

Well the US dollar spent most of the year down about 10 percent, but the rally in Q4 cut its loss to a little over three percent. I cannot call the prediction wrong, I cannot call it right, nevertheless it was a money maker.

4. Federal Reserve raises inflation expectations making WIP and TIP top performing bond markets.

If the Fed raised inflation expectations TLT would not have been the top performing bond market. US Treasuries with the longest duration did the best which clearly means the premise was wrong. TIP came in third and WIP dead last making this prediction wrong.

5. Consumers continue to payoff debt making retail #1 loser sector

Well XLP and XLY being the second and fourth best performing sectors this prediction was clearly wrong. Even a blind person can see that XLF was the biggest loser!

6. Interest rates rise and bonds produce negative returns. Please refer to the chart in prediction #4 and you will see that this prediction is wrong! Cash and TIP did earn positive returns while WIP produced a negative one.

7. There may have been 10 defaults, Jefferson County Alabama, Detroit taken over by the State and Central Falls Rhode Island were the only ones that rose to national attention. Municipal financial problems did not materialize to the extent I was expecting so I get another W for this prediction.

8. Equity markets rally through Q1, lose steam in spring, tank in the summer and rebound in the fall.

BULLSEYE! With the minor exception of the markets topping in May this prediction was absolutely correct, especially the tanking in the summer!

9. XLE, XLB and IYR will be the top performing sectors.

I was looking for inflation to raise its ugly head making "stuff" more valuable. No inflation, so "stuff" did not perform as expected. Ok, I was wrong.

10. BRIC countries will be top perfoming emerging markets led by China

Not certain that the BRIC countries were the top performing emerging markets, but China did lead the pack. I will call this a push, neither wrong or right.

Bonus Prediction

12-21-2012 end of the world prediction of the Mayan's enters mainstream media driving gold to $2,150.

Well, 12-21-2012 is beginning to enter the mainstream media and Gold did approach $2,000 per ounce but never did manage to achieve $2,150. So much for my bonus prediction.

This was the worst year in the last five years of making predictions with only two Bullseyes, two pushes and the rest were flat out wrong. Hope springs eternal and 2012 is a new year giving me new chances to be correct! Look for my market predictions on January 1, 2012.

CREE, tax loss selling over

brad@fluetschfinancialservices.com (Bradley Fluetsch) — 2011-12-22T16:38:47Z

I don't know about you, but LED lights have become a major part of Christmas. Can you imagine the electric bill if you were still using those old fashion Christmas bulbs? How many more Christmas tree fires would we have if everyone was still using those old fashion bulbs?

Not that CREE is a major manufacturer of these Christmas tree bulbs, but they demonstrate the absolute advantages of LED lighting that could be expanded to all other lighting applications.

Take this opportunity to buy the next generation of lighting technology, BUY CREE!

Merry Christmas, this is my gift to you my readers!

Relative value?

brad@fluetschfinancialservices.com (Bradley Fluetsch) — 2011-11-28T19:30:19Z

Is anything ever that good or ever that bad? So I am taken back to college economics and the thoughts of marginal utility and is that next dollar of debt or the next dollar of savings. I was contemplating is the marginal utility of selling the next dollar of loss of German equities to the marginal utility of buying the next dollar of gold?

Are German equities really that bad? Is gold relatively speaking, that good? Germany is cheaper than the emerging markets and that is crazy!

One Year

Three Year

Five Year

SLV and Gold have shined these past couple of years. The question is will they shine in the years to come or will they be sources of cash to buy the excessively cheap German industrial complex.

These charts do not make a compelling argument for Japanese stocks or the SPY.

Bonus chart, look at the level of price change in the past six months! Low volume, large price swings equals market manipulation by the flash traders.

Three sectors caught my eye

brad@fluetschfinancialservices.com (Bradley Fluetsch) — 2011-11-22T14:43:04Z

Expecting significant stock market declines in the near future, like many in that situation, I am building my shopping list. I looked a MOO yesterday and noticed a inverted head and shoulders bottom. So I started running charts on all the sectors and that same inverted head and shoulders appeared in two other sectors, XLB and IYR. Interesting that Agriculture, Basic Materials and Real Estate all have the same pattern which is unlike the rest of the sectors.

MOO, XLB and IYR are on my list, now I am just waiting for the something to hit the fan so I can buy at much lower levels.

It took awhile, but SPY is going to 100, then lower

brad@fluetschfinancialservices.com (Bradley Fluetsch) — 2011-11-21T14:50:58Z

This whole October rally smelled like a dairy farm and acted like it was orchestrated to suck the general investing public in. Fortunately, I used it as an exit and will be watching the coming decline for entry points. Those entry points will be based on price level and speed at which the market achieves them.

Hang on, markets are going DOWN!

What is USA's breakeven interest rate?

brad@fluetschfinancialservices.com (Bradley Fluetsch) — 2011-11-21T02:41:38Z

It is strange that I know a 7 percent interest rate for Spain or Italy's is a default level, but have no idea of America's default interest rate. What is the level of interest rates that would bankrupt the USA, where interest payments exceed total tax revenue given our level of debt?

You know, even having to think about that is disgusting and Congress and the Obismal Administration better wake up to the fact that the current set of policies of spend to support bloated, over-reaching government is bankrupting America.

If we are "One Nation under God" I sure hope he knows our banker!

Looking at bond ETF's for the past year

brad@fluetschfinancialservices.com (Bradley Fluetsch) — 2011-11-18T00:41:39Z

Not much to say except Treasuries are the best performing type of bond.